(b) Discuss your findings in each section of (b) above and advise whether the investment proposal is financially acceptable. (5 marks) (c) Explain briefly the key steps that should be included in a company's capital budgeting process. (6 marks) (Total: 25 marks) 6. Mutually exclusive projects A company is considering which of two mutually exclusive projectsit should undertake. The finance director thinks that the project withthe higher NPV should be chosen, whereas the managing director thinksthat the one with the higher IRR should be undertaken, especially asboth projects have the same initial outlay and length of life. Thecompany anticipates a cost of capital of 10%, and the net after tax cashflows of the projects are as follows: Year Project X Project Y 5000 0 (200) (200) 35 218 2 80 10 90 10 75 4 20 3 Required: (a) Calculate the NPV and IRR of each project. (6 marks) (b) Recommend, with reasons, which project you would undertake (if either). (4 marks) (c) Briefly explain the inconsistency in ranking of the two projects in view of the remarks of the directors. (2 marks) (d) Discuss the advantages anddisadvantages of the payback and accounting rate of return methods ofinvestment appraisal. Note: you are not required to performI 5. Breccon Co Breccon Co introduced a new product, DV, to its range last yea r.The machine used to mould each item is a bottleneck in the productionprocess meaning that a maximum of 5,000 units per annum can bemanufactured. The DV product has been a huge success in the marketplace and as aresult, all items manufactured are sold. The marketing department hasprepared the following demand forecast for future years as a result offeedback from customers. Your 1 a a 4 Demand [nits] moo span 11,oou 4pm The directors are now considering investing in a second machinethat will allow the company to satisfy the excess demand. The followinginformation relating to this investment proposal has now been prepared: Initial investment 520.000 Maximum atllronal output 51]]?! units Currenl sellhg price $50 per unit Variable operating costs $23 per unit Fined opemt'ng costs $15,900 peryear If production remained at 5,000 units, the current selling pricewould be expected to continue throughout the remainder of the life ofthe product. However, if production is increased, it is expected thatthe selling price will fall to $45 per unit for all units sold. Again,this will last for the remainder of the life of the product. No terminal value or machinery scrap value is expected at the endof four years, when production of DV is planned to end. For investmentappraisal purposes, Breccon uses a nominal (money) discount rate of 10%per year and a target return on capital employed of 20% per year. Ignoretaxation. Required: (a) Calculate the following values for the investment proposal: (i) net present value; (ii) internal rate of return; (iii) return on capital employed (accounting rate of return) I 3. Not for prot and objectives (a) Explain and comment on the problems of measuring performance in a not-for-prot organisation. (10 marks) (b) Discuss the objectives of a public sector organisation and how performance is measured and controlled. (10 marks) (c) Briefly explain the relevance ofthree measures which may be used to assess performance in public sectorservices that provide education. (5 marks) (Total: 25 marks) 2 Basic investment appraisal I 4. Made to order product A company has produced a made-to-order product for a customer at acost of $50,000. which was to have been sold to the customer for$120,000. The customer has now gone bankrupt. The company has the option of converting the product into a different version which it estimates could be sold for $85,000. The conversion would require the following: (1) 1,000kgs of material A. Thecompany currently has 2,500kgs in stock which was bought last month for$2.00 per kg, although the current purchase price has now increased to$2.15. Material A is regularly used in the company's other products. (2) 2,000kgs of Material B. Thecompany currently has 600kgs in stock which was bought last month for$3.00 per kg although the current purchase price is now $3.50. There isno other use for the material and it has a scrap value of $1.00 per kg. 12. Minicorp Minicorp is a mining company. Its mission is to 'maximise profitsfor shareholders whilst recognising its responsibilities to society'. Itis considering a mining opportunity abroad in a remote country areawhere there is widespread poverty. The mining work will destroy localvegetation and may pollute the immediate water supply for some years tocome. The company directors believe that permission for the mining workis likely to be granted by the government as there are few people oranimals living in the area and the company will be providing much-neededjobs. Identify the likely stakeholders in the company's decision.Consider their possible objectives and describe three likely conflictsin those objectives. (10 marks)1. Stakeholder groups and corporate governance Private sector companies have multiple stakeholders who are likely to have divergent interests. Required: (a) Identify five stakeholder groups and briefly discuss their financial and other objectives. (10 marks) (b) Examine the extent to which goodcorporate governance procedures can help manage the problems arisingfrom the divergent interests of multiple stakeholder groups in privatesector companies. (10 marks)